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It's pretty obvious that President Bush's proposal for personal retirement
accounts as part of Social Security isn't going anywhere.

Democrats have united in opposition; a critical mass of Republicans are
squeamish; and public support has gone down, not up, as Bush has
barnstormed the country in support of his idea.

There can be debates and recriminations about the reasons for this. It
begins with Bush failing to run in 2004 on a specific enough Social
Security plan for which to claim a mandate, and ends with Democratic
deceptions about the realistic alternatives to personal retirement
accounts.

But the political reality is that personal retirement accounts are highly
unlikely to be passed by this Congress.

Substantively and strategically, the best move for Republicans now is to
abandon efforts to reform Social Security.

Substantively, that's because the only reform worth pursuing is personal
retirement accounts.

The current Social Security financing mechanism  in which today's workers
pay taxes to fund retirement benefits for today's retirees  doesn't make
sense given the current and anticipated future demographic trends in the
country.

When Social Security was first adopted, there were over 40 workers for each
beneficiary. In the 1950s, there were over 15. Today, there are 3.5, on the
way to 2.

Simply put, there will be too few workers to pay retirement benefits at a
cost that isn't unfair or doesn't do damage to the economy.

Instead, the country needs to switch to a system in which individual
workers save for their own retirement over the course of their working
careers. In fact, the real problem with Bush's proposal was that the
personal retirement accounts were too small  they wouldn't allow enough
replacement retirement income to be built up soon enough.

There are lots of knotty issues involved in making the transition from a
pay-as-you-go financing mechanism to a true savings system. But it's the
only reform that fits demographic reality.

Establishing personal retirement accounts is the primary reason Social
Security reform is so urgent. They need awhile to build up replacement
retirement income.

If they aren't going to be enacted, then there isn't an urgency to Social
Security reform. Payroll taxes are projected to be sufficient to pay
benefits through 2016. Cutting benefits today would ease the future
financing problem, but it's hard to argue that it has to be done now rather
than sometime between now and the ultimate day of reckoning. Raising taxes
now would just increase what the general treasury owes the Social Security
trust fund. Other than abstractly making Social Security's books tidier,
there's no reason to raise taxes until the proceeds are actually going to
be used to pay benefits.

There will, however, be a day of reckoning coming, regarding both Social
Security and Medicare. The cost of these two retirement programs is
projected to increase from 7 percent of Gross Domestic Product today to 20
percent over the next 75 years.

The financial pinch is already appearing. Payroll taxes were insufficient
to pay hospitalization bills under Medicare last year. This year, they are
expected to be insufficient to pay disability obligations under Social
Security.

Right now, Social Security tax surpluses are being used to reduce what the
federal government borrows. But those surpluses are projected to peak in
2008, and then decline steadily until a deficit appears in 2017.

So, it won't be that long until the costs of Social Security inaction
become manifest: the need to reduce federal spending elsewhere, cut
benefits, increase borrowing, or raise taxes.

At that point, the Democratic deception that there's nothing to worry about
until Social Security reserves are exhausted four decades from now will be
exposed. Declining Social Security surpluses will begin to cause a
financial pinch even before the general treasury is called upon to somehow
redeem over $5 trillion of Social Security IOUs.

That's why, strategically, it's better for Republicans to let Social
Security simmer. As the true problem and choices become more obvious,
political support for personal retirement accounts will undoubtedly swell.

Moreover, Democrats will no longer be able to duck the problem. Forced to
confront the real choices, the Democratic preference for higher taxes will
become manifest. And Republicans usually benefit when Democrats are clearly
the party of higher taxes.

It's regrettable that it has come to this. It would have been preferable if
Bush had run on a proposal specific enough about the knotty transitional
issues to truly claim a mandate. And it would be preferable if Democrats
would constructively engage the real choices involved, rather than denying
the dimensions and timing of the problem and conducting a scorched earth
opposition campaign to anything Bush proposes.

But that's the political reality of the moment. And given that, Republicans
would be wise to fold on Social Security reform for now, and wait for
financial reality to deal them a stronger hand.

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